Building and Enhancing Capability

1
Building and Enhancing Capability

2
Capability

• Role of knowledge in value-added
• Creating knowledge
• Managing knowledge
• Explicit and tacit
• Strategic importance of the barriers to transfer
  and replication of knowledge

3
Creating capability

• Acquisition of capability
• Sourcing new knowledge (technology)
• Breakthrough improvement (BPR)
• May not lead to a learning organization
• Learning
• Continuous and incremental process improvements
• Learning by doing in-house
• New system not very different from the existing
  one
• RD
• Continuous as well as breakthrough
• High uncertainty and high investment
• Product commercialization

4
Operations capability

• Creating value through
• Transformation of inputs to outputs
• Fulfillment
• New business models
• Efficiency through
• Performing discreet repetitive tasks (learning
  curve)
• Waste reduction
• Technology and processes
• Integrating specialists knowledge
• Surgeons, anesthetist, radiologist, technicians
  coordinating in performing a surgery

5
Individual/collective

• Individual learning
• Learning by doing
• System-learning
• Learning before doing
• Self-improving systems
• Flexibility (individual vs. system)
• Innovation
• Individual or collective?

6
Learning curve

• Tn is the time to complete the nth item, T the
  time for the first item, and ? the rate of
  learning
• The time required to perform a task decreases as
  the task is repeated (n increases)
• The amount of improvement decreases as more units
  are produced, and
• The rate of improvement has sufficient
  consistency to allow its use as a prediction
  tool.

7
Entry barrier

• Lack of experience producing a product or service
  can be a significant barrier to market entry
• Learning loss in switching between
  products/processes
• Changes in product or processes may also disrupt
  learning
• Lost learning may make it uneconomical to sustain
  variety (e.g. multiple sourcing)

8
Vertical integration

• Balancing units with different characteristics

9
Benefits of vertical integration

• Economics of integration
• Access to technology
• Assure supply and/or demand
• Enhance bargaining power
• Enhance ability to differentiate
• Raise entry barriers

10
Cost of vertical integration

• Cost of overcoming mobility barriers
• Reduced flexibility to change partners
• Higher overall exit barriers
• Higher capital investment requirements
• Maintaining balance
• Dulled incentives
• Different management skills requirement

11
Capability creation process

• Work method
• Creating a new process for invoicing
• A better sequencing of jobs
• Coordination
• Improvements in ERP type systems
• Eliminating bottlenecks
• Technology
• Technology that makes current processes more
  efficient (laser cutting tool)
• Technology that redefines processes (bar code
  readers, FMS)

12
Processes for improvement

• Training
• Focused teams
• Management processes (QR, JIT, TQM)
• Organization-design change
• Prototypes and pilot plants
• Benchmarking

13
Matching improvement needs
14
Hierarchy of capabilities

• Cross functional
• New product development, customer support
• Functional
• Operations, RD, MIS, marketing
• Activity related
• Manufacturing, quality assurance
• Specialized
• PCB assembly, order processing, loan approval
• Single-task
• Surface mounting, soldering

15
Complexity of knowledge integration

• Increases with the span of knowledge
• Joint ventures
• Require integration across broad spans of
  knowledge
• Difficult to transfer knowledge from foreign
  operations
• Cross functional teams are challenging to manage
• Quick response is difficult to achieve
• involves integrating across multiple stages

16
Mechanisms of integration- Explicit knowledge

• Assimilation of knowledge
• Knowledge representation
• Storage and retrieval
• Knowledge access
• Codifying knowledge using advanced IT

17
Mechanisms of integration - Tacit knowledge

• Direction
• Operations manual, standardized work rules
• Performance specifications for complex activities
• Aircraft service and repair involving multiple
  locations
• Involves knowledge loss
• Organizational routines
• Patterns of stimulus and response
• Commonly understood roles of team members through
  implicit signals
• Patterns of interaction among specialists in
  surgery appear automatic

18
Characteristics

• Integration of knowledge, rather than just
  knowledge itself
• Serve the market needs efficiently
• Specialized knowledge
• Transferable between firms?
• Appropriated by the possessor, not the firm
• Proprietary knowledge depreciates quickly through
  obsolescence

19
Efficiency of integration

• Accessing and utilizing the specialist knowledge
  held by individuals
• Commonality of vocabulary, concepts, and
  experience
• Common knowledge leads to social networks, and to
  organizational culture
• Frequency and Variability of tasks
• Frequency of coordination improves signaling
• Greater the variation in routine, lower is the
  integration
• 1992 LA riot was hard to control as riots are
  infrequent
• Structure
• Economize the amount of communication required
• Bureaucratic structures can maximize integration
• High integration is achieved in JIT by reducing
  communication
• Modularization of operations (Function or
  product)

20
Scope of integration

• Breadth of knowledge
• Variety of knowledge
• Complements not substitutes
• Increasing marginal revenue of knowledge
• Diminishing relevance with variety
• Replication of knowledge
• Increase in ambiguity makes it harder to
  replicate
• Different types of knowledge may require
  different patterns of integration
• Integration of knowledge, related to flexibility,
  is more complex than that related to cost
  efficiency (Toyotas lean production )

21
Flexibility of integration

• Decreases efficiency in knowledge integration
• Accessing additional knowledge
• Communicability of knowledge (explicit/tacit)
• Boeing extension of common CAD language in
  electronics to design the 777 aircraft.
• GMs experience of encompassing Toyotas lean
  production (tacit) was painful
• Reconfiguring existing knowledge
• Benetton reconfigured its supply chain for quick
  response capability
• Starbuck reconfigured the coffee value chain
• Continuous reconfiguration?

22
Deploying capabilities

• Internally neutral
• Use external experts to solve operations problems
• Stop holding the organization back
• Externally neutral
• Adopts best industry practices
• Internally supportive
• Operations concerns are recognized in business
  strategy
• Be the best in the industry
• Externally supportive
• Redefine the industrys expectations (innovations
  and practices)
• Viewed as a strategic resource, an equal partner
  in formulating business strategy